A Home Equity Conversion Mortgage (HECM) for Purchase is a reverse mortgage that allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage. The HECM for Purchase Program provides the opportunity to purchase a new principal residence with HECM loan proceeds in a single transaction. The HECM loan does not require mortgage repayment until the borrower leaves the home permanently.
A reverse mortgage is a very complex financial tool. When deliberating whether it’s a good fit, guiding you is best left to the experts with the most experience. We have a responsibility to ensure this program is a great fit for each client. We will take the time and provide the guidance to ensure this step is taken in a professional and friendly manner and that you have an outstanding lending experience.
HECM for Purchase Repayment Requirements
The borrower can choose to repay as much or as little as they like each month, or make no monthly mortgage payments. The flexible repayment feature makes it easier for a buyer to afford the home they really want, preserve more savings and retirement assets, and improve cash flow. As with any mortgage, the borrower must keep current with property-related taxes, insurance and maintenance as part of their ongoing loan obligations. Repayment is generally required once they sell the home, pass away, move out, or fail to meet the loan obligations.
Down payment Requirement
The HECM for Purchase program requires a down payment between approximately 29% and 63% of the purchase price, depending on buyer’s age or Eligible Non-Borrowing Spouse’s age, if applicable. (This range assumes closing costs will be financed.) The rest of the funds for purchase come from the HECM loan. This allows the buyers to keep more of their cash to use as they wish, as compared to paying all cash, while still having the flexibility of no required monthly mortgage payments.
How are loan amounts calculated?
The loan amount is determined by the age of the borrower and the value of the home. This calculation is determined by the Department of Housing and Urban Development (HUD). †These are age-based loans that allow older borrowers to qualify for more in loan proceeds (see payment chart above).
Should you consider a HECM for Purchase? This program is a great fit if you:
- Are ready to downsize, up-size, move closer to family, move to a senior community, or buy their “dream home” and don’t want to take on a required monthly mortgage payment.
- Live on a fixed income; are concerned about being able to afford a new home via a cash purchase or traditional financing; and/or want to avoid tapping into their retirement nest egg.
- Your current home no longer fits your lifestyle – For example, the washer and dryer are down in the basement; the yard is too big to take care of; you need or prefer a one-floor living situation. You want a new home that’s a better fit for your needs.
- You want to increase your purchasing power to buy the home you really want, with the amenities you need or desire.
- You want to preserve some of proceeds from the sale of your home for a cash reserve or other retirement savings.